Small Cap Value Report (Fri 25 June 2021) - UPGS, VARE, ULS, FCCN, SAGA, XPD, ALT, MMH, ELTA
Good morning, it's Paul here with Friday's SCVR. Plenty to cover today, including some catchup items from yesterday, when Jack kindly covered for me. I've given Jack the day off from SCVR duties today, as a thank you for yesterday.
Timing - I've got the whole day free, so we'll see how things progress. Update at 10:42 - making good progress so I should be mostly finished by 1pm. Update at 12:38 - I want to do 2 more sections (Robinson & Marshall Motors), so am extending finish time until those are done. Update at 14:21 - that's it, I've run out of puff! So - today's report is now finished.
Disclaimer -
A friendly reminder that we don’t recommend any stocks. We aim to cover notable trading updates & results of the day and offer our opinions on them as possible candidates for further research if they pique your interest. We tend to stick to companies that have news out on the day, and market caps up to about £700m. We avoid the smallest, blue sky type companies, and a few specialist sectors (e.g. resources, pharma/biotech).
A central assumption is that readers then DYOR (do your own research) and discuss in the comments below. The comments, incidentally, sometimes add just as much value as the articles. We welcome all rational views, whether bull or bear!
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Agenda -
Paul's Section (all today's report is by Paul):
Up Global Sourcing Holdings (LON:UPGS) - acquisition of Salter brand. Looks a good deal, on a EV/EBITDA ratio of 7.4
Various Eateries (LON:VARE) - interim figures are largely irrelevant due to lockdowns. I check out its balance sheet, and some more general thoughts about the business & sector. Too early to judge if it's good value or not.
French Connection (LON:FCCN) - victim of a cyber-security breach. A criminal gang has "penetrated its back-end" according to TheRegister.com
Uls Technology (LON:ULS) - accounts delayed due to problems finishing the audit on time.
Saga (LON:SAGA) - a snippet of information about its imminent first cruises. Also, pricing of new bonds announced.
Xpediator (LON:XPD) - another positive trading update, with profit guidance raised.
Altitude (LON:ALT) - CFO has resigned (effective Dec 2021, supposedly). Shares down a little today. This share is on my speculative watchlist. I take the view that, if exciting things were in the pipeline, then the CFO would want to stick around. Hence feels bearish to me. The auditor was changed in April, and Broker/NOMAD changed from Finncap to Zeus on 15 June 2021. Fundraising coming? Last reported cash was £2.1m at end March 2021, which actually went up from £1.3m on 22 Jan 2021, although I'd like to see how creditors had moved over that period. No section below, this is just a short note.
Marshall Motor Holdings (LON:MMH) - a strong H1 update, combined with both caution and uncertainty over H2. See if you can work that out?! Looks great value, similar to Vertu Motors (LON:VTU) (I hold)
Electra Private Equity (LON:ELTA) (I hold) - here's a short video which may be of interest. It's the CEO of (TGI) Fridays casual dining restaurant chain, owned by ELTA, which is being spun off in Q3 this year. ELTA shareholders will receive shares in Fridays, which is the bulk of the value in ELTA shares. Hence if you own ELTA shares, you need to see this, to help form an opinion on Fridays as a standalone investment as it will shortly become.
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Paul’s Section
Up Global Sourcing Holdings (LON:UPGS)
214p - mk cap £183m
The well-known homewares brand Salter is being bought by UPGS. UPGS already licences the brand (expiry: 2024) for use in kitchen products, so buying it will not only eliminate royalties, but also add Salter’s other, lucrative product ranges (especially kitchen & bathroom scales, where it is market leader).
The purchase price is £32m cash, plus £2m deferred.
Forecasts for Salter show: £16.7m revenues, £4.6m EBITDA, and £4.0m underlying profit before tax.
EDIT: I have queried with Equity Development, who have confirmed these forecasts do take into account elimination of the 5% royalty payments (£1.3m p.a.) currently paid to Salter for using its brand name. This will eliminate £1.3m of expense in future for UPGS. End of edit.
Taking £34m consideration (which should be the same as EV, because it says the price is on a nil cash/debt basis), and dividing by £4.6m EBITDA gives a multiple of 7.4, which looks reasonable. Whatever we think of EBITDA, acquisitions seem to generally be calculated on a targeted EV/EBITDA multiple. John McArthur of Tracsis used to say he targets a multiple of 7 times, and since then private equity bidders have chased up multiples higher. So 7.4 times for this deal is probably quite good value in current circumstances.
Funding - a £15.0m equity fundraising (only 8% dilution), at 215p (only 2.3% discount) is taking place, including a Primary Bid offer. The balance of the acquisition price is coming from internal resources.
My opinion - this looks a good deal, based on the limited information given. It’s bolting on a material amount of extra profitability, at a reasonable purchase price, for only modest dilution. Therefore EPS should rise substantially.
This is how acquisitions should be done - i.e. perform well, so that the stock market puts your shares on a high rating (current forward PER is 20.2). Then use your relatively expensive paper to part-fund cheaper rated acquisitions. Fund the difference using debt, which is repaid from the cashflows generated by the acquisition. Put the two together, and the figures look wonderful, which keeps the ball rolling. Rinse & repeat!
I also like the fact that UPGS is sticking to its knitting - i.e. acquiring a similar company, in a sector it understands well. That lowers the risk of something going wrong, because management understand what it is they’re buying.
This share has done incredibly well since the covid lows in March 2020, rising in price more than 6-fold.
Note the high quality scores, which I like - this is a fairly asset-light business model, which doesn’t need much in fixed assets, because production is all out-sourced to the Far East. So all it needs is UK warehousing, and some working capital.
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I’ve missed the boat on this one. Despite writing positively about it here, I didn’t feel confident enough to want to buy any shares last year, and given that it's risen 6x since, am not interested in getting involved now.
Bear in mind that this company went badly wrong, only a few months after listing in 2017. Yes it has recovered very strongly since then, but I’m still a little wary about what caused that, and whether it could happen again?
Stockopedia’s emotionless formulae like it a lot:
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EDIT: Equity Development has published an updated note today. It's pencilled in an increase in adj EPS, now:
This year FY 07/2021: 10.2p
Next year FY: 07/2022: 13.7p (PER at 214p is 15.6 - looks about right to me)
End of edit.
Various Eateries (LON:VARE)
97.5p - mkt cap £83m
Various Eateries PLC, the owner, developer and operator of restaurant, clubhouse and hotel sites in the United Kingdom, announces its results for the 27 weeks ended 4 April 2021.
Since this period covers mainly lockdowns, the loss-making trading results are irrelevant, since sites were mostly closed.
Re-opening trading information is more interesting, although we don’t know how much of that is one-off strength from initial pent-up demand? Also the amount of outside space is a major factor in how bar/restaurants have performed under remaining restrictions.
Oct 2020 - +10.1% LFL sales in Oct 2020, but this excludes London sites, and is the only complete month of trading. So this number looks cherry-picked!
Recent trading (April 2021 onwards) -
Very strong trading since reopening facilitated by large outdoor spaces
The figures again seem to be cherry-picked to showcase the best performing sites, rather than giving the whole group totals -
Better than anticipated sales across Coppa Club estate with like-for-like revenue up 11.3% in the first five weeks (12 April to 16 May) of exclusively outdoor trading versus the same period in 2019
Further significant uptick in sales in the five subsequent weeks (17 May to 20 June) where Coppa Club sites have been able to open indoors with like-for-life revenue up 28.3% versus the same period in 2019
Solid performance at Tavolino Tower Bridge and Strada Southbank, despite continued absence of office workers and tourists
Insurance - I’m not aware of other listed hospitality businesses which have successfully claimed on their insurance. Have readers spotted such insurance payments at any other similar businesses? This is obviously helpful -
Received business interruption insurance interim payment of £2.5m in December 2020
Balance Sheet - NAV is £24.4m. Deducting £12.87m of intangible assets (goodwill on acquisitions) gives NTAV of £11.56m, which looks solid for the size of business (it only has 13 sites). Note that it owns £1.8m in freehold property, included in NTAV above, a good thing. We love freehold property here at the SCVR.
The stand-out numbers are large “Borrowings” of £5.2m in current liabilities, plus £31.47m in non-current liabilities. Note 9 explains these, which are:
Borrowings from related parties £2.47m + £10.0m = £12.47m
Lease liabilities £2.74m + £21.47m = £24.21m
I think it’s misleading to lump these together, and call them borrowings on the face of the balance sheet. Lease liabilities are not borrowings, here in the real world. They are actually future years operating costs (rents). The ridiculous IFRS 16 requires them to be included on the balance sheet, but these figures should be shown separately to borrowings, as they’re completely different in nature. We really shouldn’t have to dig into the notes to find out the commercial reality. Other companies show leases & borrowings separately, so why VARE does not, I have no idea. It’s an own goal in presentational terms, as many people might be put off by what seems like excessive debt.
There’s a cash pile of £19.2m, so plenty of firepower for new site acquisitions and fit-outs, at a great time to be expanding, when there are lots of empty sites available on attractive deals.
Before buying this share, I’d want to know the detailed terms of the £12.47m related party borrowings mentioned above. Who provided this funding, and on what terms? Providing this loan funding is secure, and can’t be withdrawn (e.g. due to covenant breaches) then the funding position looks OK.
Management - the main reason this share attracted a premium valuation, is the involvement of Hugh Osmond (NED) and 47% shareholder. He’s assembled an experienced operational management team. Highly regarded Marlborough funds (Canaccord now, used to be Hargreave Hale) owns 24%, so the free float is small. Other Directors own about 6.5% too.
I’ve asked Stockopedia to widen the shareholder table, as it doesn’t display properly for me, unless I reset the page zoom to 100%. A third of the page width is taken up by the explanatory note, leaving not enough width for the actual data! I have to click on the data, and scroll right, to see the "% Held" column, which then partially obscures the "x date" first column. Hopefully they can fix that bug at some point.
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My opinion - neutral, because we haven’t got any proper figures of how the business will trade once restrictions have ended.
It looks extremely expensive for a business with only 11 trading, and 2 further new sites. I suppose the market has given it a roll-out premium, and a star management premium on top of that. I don’t like paying up-front for future growth, nor for star management, who often don’t perform as well as expected. They can’t work miracles after all, and there are thousands of competitors. The exposure to central London is also a worry. Although this time next year, I imagine tourism & working from offices, are likely to be back maybe closer to historic levels. After any disaster, things return to normal quicker than many people imagine.
At the moment, VARE seems impossible to value. The other thing is that new formats like this, with big budgets for capex, always trade brilliantly to start with, because customers actively seek out nice surroundings & trendy formats. Give it a couple of years, and once the internal fit-out is starting to look tired, then customers drift away to newer, fresher competitors. That’s why EBITDA is such a dangerous concept in this sector - it ignores maintenance capex, which can be significant, and the need for 5-yearly major refits.
The "igloos" at Coppa Club sites look great, but already competitors are copying this idea.
It only listed in Sept 2020, so early days still. I'm booked in to join a Zoom with management next week, so will report back if there's anything interesting.
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Uls Technology (LON:ULS)
As a shareholder in Renold (RNO), I’m slightly relieved to find another company in ULS that needs more time to complete its audit.
The Group's auditors, BDO LLP, have requested some additional time to finalise their work, due to the practicalities of conducting the audit remotely.
As did Renold, ULS reassures shareholders that it still expects results to be in line with the earlier trading update.
There has been no move in the ULS share price on this news, so it doesn’t seem to have spooked shareholders. Whereas Renold has sold off about 30% since announcing delayed results, although there have now been 2 delays, and no date set for Renold results, which does make me wonder if the problem might be larger than currently disclosed? That’s pure speculation though.
Can readers think of any other companies that are delaying results due to audit problems with remote working? We should make a list. Most companies seem to be managing fine, so it does raise questions at the companies which have not managed so well. Even if it’s just down to them not being very well organised?
Another problem with audits, is that the audit staff are booked up months in advance. So if an audit is not completed on time, it’s very difficult to find audit staff available to finish the job. Thinking a long way back to my early career as an audit junior with Price Waterhouse, not finishing an audit job was simply not an option. It had to be finished, or you weren’t allowed to leave! I suppose that threat is not really available when people are working from home, which could have a bearing on things. Although thinking that through, it should also make it easier to finish work on a job that does over-run, since auditors could do so from home, without having to visit any sites.
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French Connection (LON:FCCN)
(I hold)
TheRegister.com has reported that FCCN has (rather appropriately given the FCUK slogan!) had its back-end penetrated -
… a gang understood to be linked to REvil having penetrated its back-end - making off with a selection of private internal data.
I wonder if the company is planning on letting shareholder know with an RNS?
The article says that no customer-related data was stolen.
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Saga (LON:SAGA)
(I hold)
An interesting snippet of information, which my daily Google search spotted.
TravelWeekly says that Saga's first cruise ship sailings will operate at only 50% customer capacity, starting this coming Sunday. This is due to continuing Govt restrictions.
Saga is quoted as saying -
“With all of our guests and crew fully-vaccinated and high demand for our cruises, we are working to ensure we can accommodate as many guests as possible.”
The line said it understood concerns around the latest Covid-19 data but added that “such tight capacity constraints is disappointing for our fully vaccinated customers”.
My opinion - I'm not bothered by short-term, temporary issues like this. When owning the shares, I own part of the company's earnings into perpetuity. So delays, or hitches, with re-opening will be quickly forgotten. We don't have to react to every piece of newsflow. It's a pity there are so many traders in the stock market, doing exactly that - and causing excessive volatility in the share price. But I suppose they add liquidity.
It will be very interesting to see what happens with cruise ships, as sailings resume in many parts of the world. The question is, whether vaccinating all the adult guests & crew will be enough to prevent a serious outbreak like we saw at the start of the pandemic? Given that the vaccines seem to be highly effective in reducing death & serious illness, then to my mind it stands to reason that a ship full of vaccinated people is not likely to result in a serious outbreak.
Indeed, recent press reports of an outbreak of covid on a cruise ship sounded very positive. Only 2 people tested positive (both asymptomatic) and it didn't spread any further. Which sounds remarkably positive to me. Clearly the vaccines, and preparedness by the cruise ship (having quarantine facilities ready, some social distancing on board, testing everyone before they get on board, enhanced cleaning, requiring proof of vaccination for everyone before they get on board, etc) have worked.
Putting all those measures together, and it seems to me cruising should be able to get back to normal now. Of course SAGA's demographic of over-50s are the people with most of the money, and who are fully vaccinated, apart from anyone with some specific exemption, plus of course the numpties who refused the jabs - who won't be able to go on holiday, tough luck!
Time will tell. Investors seem more upbeat about the future - as you can see from the 1-year chart below.
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EDIT - another announcement has come out:
Pricing of fixed rate guaranteed bonds
SAGA announced recently that it was issuing a new bond for £250m, to repay £100m of the existing 3.375% bond, repay £70m of bank debt (term loan), and give it £80m extra spare cash.
The terms are announced today:
5.5% interest, payable twice per year, so £13.75m p.a. interest
Capital is payable at the end, in 2026 - so 5 years' secure funding
Unsecured, but guaranteed by group companies
Issued at par
Use of funds: repaying £100m of the cheaper, but shorter dated 3.375% bond, repaying £70m bank term loan, and providing £80m surplus cash.
My opinion - it's more expensive, but more secure, and longer-dated debt. Risk of shareholder dilution is now basically non-existent in my view, unless something unforeseen were to occur. So equity looks a lot safer now too.
Given the unknown risks from covid, clearly management have decided to do a "belt and braces" job on their liquidity.
Debt can be easily refinanced, or repaid again in future.
Hence a thumbs up from me.
Xpediator (LON:XPD)
74.5p (up 3.5% at 11:36) - mkt cap £105.6m
Xpediator (AIM: XPD), a leading provider of freight management services across the UK and Central and Eastern Europe…
Trading sounds positive -
… is pleased to confirm that, further to the AGM Statement of 8 June 2021, based on positive trading trends for the first six months of the year, it is able to increase guidance in respect of expected performance for the year to 31 December 2021.
Guidance - we’re given specific profit guidance too, not just warm words, which is great -
As with many logistics businesses, the majority of profits are made in the second half of the year. However, results received to date for June 2021 have continued the strong trading trends since early 2021, and the Board now believes the business is well placed to deliver full year adjusted profit before tax in excess of £8.5 million.
Outlook -
Robert Ross, Chief Executive Officer of Xpediator, said: "We have had a good first half which has positioned us well for a strong outcome for the full year. We are bringing the Group closer together unifying IT, people and brands, the benefits of which are starting to come through."
My opinion - checking back through my previous notes here, there was a positive update on 29 Jan 2021, which I reported on here, concluding that the update was impressive, and the shares might be worth a closer look. They’ve gone up from 44p to 74.5p in just 5 months, a really impressive +69%, so well done to shareholders in XPD.
Checking the last accounts, NTAV is only £7.7m, so the £105m market cap has little asset backing. Also, with a low profit margin, and large receivables/payables, this is a tough sector to operate in, hence not a business model I would personally want to back.
That said, we’ve seen with both Wincanton (LON:WIN) and Clipper Logistics (LON:CLG) how there’s plenty of profit, and growth, for the best operators. So maybe I should reconsider my sector aversion?!
The share price is now getting close to previous all-time highs. I wonder what caused it to then retreat into a 2-year decline (starting well before the pandemic)? This suggests to me that profits may not necessarily be resilient, or sustainable? Having said that, XPD produced good figures for 2020, and it looks like 2021 is going better still.
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Marshall Motor Holdings (LON:MMH)
195p (up 2%, at 13:12) - mkt cap £152m
Marshall Motor Holdings Plc, one of the UK's leading automotive retail groups, today provides the following unscheduled trading update given significant upgrades to both first half and full year expectations for 2021.
PR heading -
Unscheduled Trading Update - Record Results anticipated for 2021
Key points -
- Market tailwinds continuing
- Recent “unprecedented” used vehicle price rises
- Favourable demand to supply conditions for new & used vehicles
- “Exceptionally strong” H1 (Jan-Jun 2021), both profit & cash generation
- Diary date - H1 results due out 10 August
- Outlook - high level of uncertainty for H2 and possibly longer, due to new vehicle supply issues (semiconductor shortages), and covid
- Supply issues had “limited impact” in H1, but signs are this could get worse in H2 & beyond
- Dividends - intend to resume asap.
Guidance - rather mixed messaging here, I feel -
As a result, there are a wide range of possible outcomes for the Group's full year results. Despite having committed to repay £4.0m of Government support, as previously announced, the Board now expects that continuing underlying profit before tax in 2021 is likely to be significantly ahead of current market expectations and well ahead of the Group's historic record result.
My opinion - I need to read this several more times I think. It’s rather confusing - trumpeting record anticipated results for FY 12/2021, whilst at the same time saying there is a wide range of possible outcomes.
In essence though, strong current trading echoes what Vertu Motors (LON:VTU) (I hold) said a few days ago.
Both MMH and VTU are on single digit PERs, and have strong balance sheets. Paradoxically, supply problems seem to be driving profits up. It doesn’t matter if they cannot sell as many cars, if the margin on each car sold is much higher. Plus there’s pent up demand for servicing, deferred from last year, probably.
This sector very much appeals to my inner value investor. MMH looks really good. The StockRank of 98 is also almost at the maximum possible.
MMH doesn’t seem to mention online sales today. For that reason, I prefer VTU, which seems to have put more emphasis on digital matters.
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87 comments
Sustained above recent average inflation for sustained period is definitely coming. But recent market action (until start of June) and general narrative is that inflation is straight line take off mode…
…but first we will have rapid deep deflationary impulse like we’ve never experienced. Not even during the fast moving boom bust 1800s markets.
Sustained high inflation is not possible from here. It’s a misreading of data and history. Of course, we can continue to have short run disruption driven inflation.
Word
A couple of late Friday RNS releases about a possible tie up in the U.K. defence sector between Cobham (LON:COB) (bought out by Apax private equity last year) and Ultra Electronics Holdings (LON:ULE) (still listed). Could be some form of merger or possibly an offer by Cobham/Apax for Ultra Electronics Holdings (LON:ULE) . Both parties acknowledge there have been discussions. Ultra Electronics Holdings (LON:ULE) are being a bit coy about how far they have gone/will go. Methinks/hopes the lady doth protest too much. I hold Ultra Electronics Holdings (LON:ULE) .
https://www.investegate.co.uk/...
https://www.investegate.co.uk/...
Gus.
Team17 (LON:TM17) (I hold) market cap is above the limit for these posts but thought any other holders might be interested in this news of the ceo getting an award https://www.mcvuk.com/developm...
Thanks for sharing
regarding re-opening cruise trade (purely investing wise, before people report me again):
Latest UK report: https://t.co/P9LNO0gHZ9?amp=1
In the age group >50 with over 90% vaccination uptake by today.
88% of the Delta variant was found in the vaccinated group.
How does that impact the re-opening cruise trade?
In the age group >50 with over 90% vaccination uptake by today.
88% of the Delta variant was found in the vaccinated group.
How does that impact the re-opening cruise trade?
Must admit i sold out of Easyjet (LON:EZJ) a while back when i though the post covid bounce had probably got slightly carried away based on the present huge uncertainty about anything- i still have some Carnival (LON:CCL) shares (bought before feb last year) that i am down 50% on - i hold those but thats through stubbron stupidity and not any sensible investing logic as the debt/losses makes it a bit of a basket case investment at present.
I can see the logic of saying though for saga it's not so much of an issue with their other income streams.
If we take the viewpoint serious hospitalisations and the like will be down 75%+ for those double vaccinated over 50's and they + other they travel with should also be materially less likely to be super spreaders and those that are on board can be tested and monitored - i think on the balance of probabilities a measured return to cruises will probably work out ok even if its ultimately us accepting the "risk" and getting on with it due to covid fatigue.
From an investment point of view for those that want to protect their capital - being on the outside watching in with regard to "all overseas travel operators" is still a bit of a no brainer with the opportunities to invest elsewhere. That doesn't mean they are a bad investment though does it and we will have to wait for the flopping mops in that regard?
Paul,
While avoiding the conspiracy theory swirling around below, I wonder if the higher rate of interest demanded by the bond market for Saga (LON:SAGA) is a bell-wether for interest rates generally. If the market is nervously anticipating a sharp rise in inflation , might it also be anticipating a rise in rates to dampen demand?
SAGA - It’s a good bet that with only fully vaccinated people on board that there wouldn’t be a serious C19 outbreak. But any outbreak would have the effect of shutting down the ship. There would be no port calls and people are likely to be confined to their cabins or have their onboard movement highly restricted. We were on board a SAGA ship in February last year just as SARS- COV2 was taking hold and we had a viral outbreak onboard. It was fortunately not Covid but norovirus, however no port would let us dock and for the last week we were confined onboard with significant restrictions - it spoilt our holiday. I fear that an outbreak, even if minor, on any cruise ship, could result in very bad publicity for the industry. Hopefully no outbreaks will occur, in which case the SP will surge, but there is a risk, at least for the next year or so. But on the other hand the downside risk is probably limited - so pay your money and make your choice . I don’t hold.
Can you quote an official source that if there is an outbreak on the cruise ship, it is forbidden to dock?
Or are you working on the assumption that authorities will take the same actions this year as they did at the start of Covid?
(I hold Saga (LON:SAGA))
It's up to the individual port authorities whether they allow the ship to dock. Our last port of call was Gibraltar and they refused to allow our ship entrance to the port, we just sat at anchor for a day.
I have no idea what individual countries will decide to do but I can't see too many allowing a ship with a C19 outbreak to allow passengers on shore. And I am certain that there would be quite severe restrictions on board too. For our norovirus outbreak (an unpleasant but non-fatal disease, most of the bars were closed as was the library and the theatre. Obviously anyone with symptoms was confined to their cabin.
All I'm saying is that an outbreak on board any cruise ship is likely to create a lot of negative publicity. I'll leave it to you to decide how likely it is that there will be such an outbreak and what its impact on demand would be.
I'm not suggesting SAGA is a bad investment, certainly not for the long-term, I'm just highlighting a potential short-term risk based on my personal experience.
not sure if you have seen the latest report, but in the age group >50 with over 90% vaccination uptake: 88% of the Delta variant was found in the vaccinated group.
https://t.co/P9LNO0gHZ9?amp=1
@FREng I'm not sure that list is up to date. It seems to be from this page but that just lists the top 10 as of June 2020.
A look at their monthly NAV statements shows that they have either eliminated or reduced the Redde holdings so that they are (at the least) no longer in their top 10.
*Edit* here we go. This RNS shows the amount at least dipping below the notifiable threshold.
Hi Glorenfeld, you are correct. Crystal Amber Fund (LON:CRS) exited out of Redde Northgate (LON:REDD) a while back. The half year report for Crystal Amber reads: "During the period, the Fund exited STV Group and Redde Northgate plc, realising a £9.4 million loss on the latter. The proceeds from the sale of Redde Northgate plc were allocated to the share buy-back programme." Not such a smart move (with hindsight of course!)...
Hi Paul, I found this article from Feb whilst doing some research surrounding the delays at Renold (LON:RNO) (I hold). Just visible over the paywall (if you stand on tiptoes) it says:-
"Gambling group William Hill Plc and Direct Line Insurance Group Plc said Wednesday that they were both delaying their announcements of full-year financial results, as lockdown restrictions meant Deloitte needed more time to complete its audits."
https://news.bloombergtax.com/...
I drew some comfort from this being both an example of accounts being delayed, and the fact that it was Deloitte. I've taken the Renold (LON:RNO) RNS at face value based on this - but obviously it doesn't preclude anything else cropping up there.Paul - "Can readers think of any other companies that are delaying results due to audit problems with remote working? We should make a list".
Well, I gave you one when I replied to your comment on Wednesday: https://www.stockopedia.com/co...
Well, I gave you one when I replied to your comment on Wednesday
Of course! I instantly memorise every comment.
Hi Paul
Re ULS. The results and presentation are only delayed a couple of weeks. There were a few more delays last year obviously, as you say. New date is for July12th. In the meantime this is a very useful clip from April with the new CEO, who has pretty interesting history with HSBC and a comparison site.
I sold my shares here on the recent spike but have since bought back. The house buying market is well over due a revolution. The torturously slow method of solicitors makes me think they are all still writing with quills. The last house I bought, I ended up doing much of the searches and planning permissions grated myself online. I also ended up getting most of the stamp duty back for 'multiple house purchase' two properties on the same plot,' which the solicitor agreed to pay for, either because he didn't believe I'd get it or he didn't understand how to do it.
Its quite ridiculous that it now takes a solicitor between 4-8 months to complete sale. The longer a sale takes the more likely it is to fall through, not least in a rising market as now. Does that necessarily make ULS a good buy on its own? Possibly not but they are well financed, and the housing market will inevitably cool off eventually. Like the company and am really delighted to see someone vastly improving the service. They have had good feed back from estate agents too. I also spoke with a director of a large firm of estate agents that are developing their own software to help speed up house sales.
Just as a footnote. This company like CNIC have Kestrel as a major shareholder (22%): 'We aim to generate superior, long-term returns by discovering, accessing, investing and driving change in under-valued and under-researched tech companies with low gearing.'
There is a RNS on Saga (LON:SAGA) about a stabilisation notice issued by HSBC. Anyone know what this means in layman terms and whether it has any import?
Great news that SAGA cruises are restarting - I took a peek at their website; this was announced there on 21June and reading their announcement, I have to say that this is how I'd like to be treated as a customer. They're giving discounts because they're no longer allowed to land in Scotland, unconditional full refunds if you want, upgrade offers to Canary Islands if you're willing to postpone etc. I can't help feeling this will feed through into customer loyalty.....
French Connection (LON:FCCN) - the phrase "A criminal gang has 'penetrated its back-end' " made be smile and wince simultaneously. Highlight of my morning :)
Urghh! You've got a filthy mind ;-)
It sounds very painful.
It sounds bare-ish to me.
Renold (LON:RNO) (I hold)
I notice from the Major Shareholders Table (which unfortunately I don't seem to be able to copy & paste) that the Renold PLC Employee Benefit Trust bought 7.6M shares on 23rd June 2021.
Is it naive of me to think that neither the Trust nor the company would allow/want this transaction to go ahead if there was some impending problem at Renold, other than the delays already announced?
Morning "Norfolk"
I've spoken with management at Renold before, and find them very straight, not promotional at all, and giving honest answers to direct questions, etc. Also management has a fair bit of skin in the game, bought in the open market. Therefore, I'm quietly hopeful the delay in the audit might be innocent, but you never really know for sure until the full facts emerge.
I could pick up the phone and ask them direct what's going on, but (1) they wouldn't be allowed to disclose anything meaningful, and (2) if they did, I would then probably be considered "inside", hence I wouldn't be able to sell or buy any shares, nor disclose any information to readers here either. Hence in this type of situation, I don't tend to contact companies for comment.
Regards, Paul.
Thanks for the reply Paul.
Do you think the Employee Benefit Trust purchase is of any relevance in deciding the rights and wrongs of this then?
Re Renold (LON:RNO) (I hold)
Do you think the Employee Benefit Trust purchase is of any relevance in deciding the rights and wrongs of this then?
I honestly don't know, and wouldn't want to speculate. Any readers with experience of how these things are done?
Regards, Paul.
Here are my SCVR heat maps for today (prices as at ~9:45am).
I share these heatmaps with the intention of giving a visual indication of what is going on in the SCVR world: who’s reporting (and it's impact on the share price); and what’s moving more than 'normal'. There are no associated recommendations, implied or otherwise, just information. How, or indeed if, you choose to use that information is up to you. Please feel free to ignore them if you don't find them useful.
Please read my heat map thread for a great deal of explanation of how the heat maps are formed and how I use them to guide me with my research, and for a full key to the contents.
I very much welcome feedback so if you do have any feedback, not already covered in the heat map thread, it would be very helpful if you could post your comment in the heat map thread rather than the SCVR thread. The more specific and constructive the feed back is, the more that likely it is that I will be able to act upon it. Thank you all for the feedback so far.
Small / Micro Caps reporting today:
Big movers today in the SCVR world (moving more than a 20d EMA of the ATR against either yesterdays close, or today's open):
Warm regards, stay safe, and best of luck!
greensiax
This mornings update from Crystal Amber Fund (LON:CRS) is quite interesting if anyone hasn't seen it; it appears that a major shareholder will object to the continuation of the fund, which may well result in it being gradually wound-down and funds returned to unitholders.
I say its interesting as CRS hold some fairly big chunks of small caps (the full list is on their website but includes DLAR (14%) and EQLS (22%)). For what it's worth, I was reluctant to do it, but I've exited Equals (LON:EQLS) on the back of that as I don't want to deal with the potential overhang. Anyway, thought I'd share if of interest to others. Best, Will.
Will,
Thanks for the update about Crystal Amber possibly selling its shareholdings. I have sold my holdings in Redde Northgate (LON:REDD) to capture profits to date, just in case.
Here is the list of Crystal Amber's Major Holding, from their website.
The Fund's major holdings are disclosed in the monthly NAV
announcements, which can be found in the News section. Quarter-end NAV
announcements also include a commentary on some of the Fund's
investments.
The holdings list and comments below were included in the Fund's Annual Report for the 12 months ended 30 June 2020.
(The comments only show on the website and are too long to post here)
01. De La Rue plc
02. Allied Minds plc
03. Equals Group plc
04. Redde Northgate plc
05. Hurricane Energy plc
06. Board Intelligence Ltd
07. Camellia plc
08. Sutton Harbour Group plc
09. GI Dynamics Inc.
10. Kenmare Resources plc
The Crystal Amber situation throws up some interesting situations. For any holders in Hurricane Energy (LON:HUR) (a U.K. oil prospector that was going great guns until last year’s oil price crash and some dodgy management decisions on how best to manage an upcoming bond maturity date) it’s especially pertinent. Crystal were/are in the process of requisitioning a shareholder vote (Crystal have a substantial underwater equity holding in the company) in early July to have the existing Hurricane board replaced by their nominees to prevent a proposed restructuring of the bond that effectively wipes out the existing shareholders. From the outside it looks like Crystal have the support of most of the shareholders (think of turkeys being asked to vote against Christmas) and there was some hope that an alternative refinancing more favourable to the shareholders could be devised. With Crystal itself now being threatened with extinction one might expect this to whack the Hurricane Energy (LON:HUR) share price - except Hurricane Energy (LON:HUR) is up about 13% at the moment (although admittedly the share price is all over the place this morning). Work that one out ……
Gus.
If FCCN confirms the breach, maybe we will see a V shaped price movement similar to CakeBox? Food for thought.
If FCCN confirms the breach, maybe we will see a V shaped price movement similar to CakeBox? Food for thought.
I agree, it seems that, providing data breaches at smaller companies are not serious, then share prices do seem to recover. We saw that with an agricultural products company too, was it NWF?
That said, I'm braced for a spike down in FCCN share price when it gets announced, because the market makers mark things down pre-emptively, then wait to see what the market does in terms of buyers or sellers. That said, anyone holding FCCN is probably quite stoical in dealing with bad news.
Regards, Paul.
I went around the Up Global Sourcing Showrooms in Ashton in 2019 and was very impressed with the management who were friendly and transparent.I bought the shares then at 80 p and applying John Lee's investment ideas planned to keep UPGS shares as long as i like the management which i did when the shares collapsed in March 2020.Sometimes on presentations one sees managements who are emotionally unintelligent.There are plenty of examples of managements who lack emotional intelligence and who are very successful as in Mike Ashley but i prefer to back managements that understand the need to have empathy with customers,clients and employees
Shield Therapeutics STX. RNS was out yesterday regarding the start of sales in the US (good news) but today the stock has gone down 7%. has anyone seen any negative news on this stock to cause this or is it just a case of buy the story sell the news?
Paul Scott - you say that things went badly wrong post the initial float. I actually question this statement. The market did indeed assume that things had gone badly wrong. In reality it looks like a key assumption upon float didn't happen, as such the market assumed that everything the management team were saying was inaccurate. Basically a lot of sales were shifted or deferred into the subsequent year. I agree it did go badly wrong for those who bought in at the initial float price - but in line with management statements at the time, things did pan out as they had stated. Obviously if you had sold at the subsequent lows then that would be upsetting, if you held on however you would have broken even now and in my opinion have a quality company with some real growth prospects. I was fortunate and average around 38p on this. I have gradually sliced some of my holding away as it became very outsized. I am however hanging onto the remainder as this is a quality outfit run by a management team with significant 'skin in the game'. I think the initial float was a little 'over enthusiastic' - I am however appreciative as it gave me a great opportunity to buy in. The pandemic low tested my resolve, but in all honesty most of my holding was 'free' at this point - I actually picked up a few more of these. I think we will look back at this in 5 years and it will be £3 to £4 a share.........hopefully!
Hi drkelly,
Re. Up Global Sourcing Holdings (LON:UPGS)
I take your point. But I stand by my point too - any company that lists, then puts out a profit warning just a few months later, is going to be regarded with great suspicion, even anger, by the market. It's a terrible crime, in stock market terms - because it looks as if the float was fluffed up to look good, with unrealistic forecasts.
That it got back to breakeven over a 4-5 year period, wouldn't make many of the original holders very happy either, I imagine.
Sounds like your belief in the company has been helped by buying more at the lows! After presiding over the initial IPO disaster, lots of people wouldn't want to touch the company ever again. Although I feel it has earned its stripes again more recently. Management impressed me last year, in an interview I did, seeming well on top of things.
Regards, Paul.
Good morning to the host and the readers! We appear to have a serious inflation problem pending that the Bank of England seems to be ignoring. The Bank says it expects inflation to bust 3% but is ignoring it and taking the 'let the market run hot' approach. Personally I expect real inflation is well over 3%. I have a high percentage of portfolio in cash as I thought markets/valuations were topped out. But being in cash in an inflationary spiral is probably the worst place to be.
Anyone got any ideas of the best investments for this type of macro picture?
Well I am mainly in equity’s and am happy to continue. What other choices are there that will give a inflation beating return ?
This is not a political snipe. I am a tory party member. For now.
They are about launch a raid on pensions. Cutting the higher level tax relief and lifetime allowance.
They have already increased stamp duty on investment properties and taken away the interest relief on BTL mortgages.
They are targeting middle class investors who are arguably their traditional voters.
So in answer to your question I am not sure where else you can invest. Equities seem the best option to me.
If I could make a non-political comment on higher level tax relief on pensions, I would admit that I have taken advantage of this myself especially when tax rates were much higher in the past. However, I have never understood why a person on higher income should obtain greater percentage tax relief on a pension contribution than those on low incomes. It is arguably those on lower incomes who need more help in building up a decent pension fund.
I think you also have to consider the period over which the contributions are made.
Not everyone is able to make a significant stream of tax relieved contribs at basic rate from the beginning of their working life. Early in careers people are often saving to buy houses, raise children etc.
Indeed, peak earning and disposable income years for most people arrive near to the end of their careers when they are most able to contribute towards their retirement and also into paying high rate tax.
It was not so long ago that the annual allowance was £250,000 and there was no limit on the total pot you could build before you were whacked with another tax charge (lifetime allowance). The money coming out of a pension is subject to income tax anyway; taxing the money on the way in *and* the way out is a bit rum.
Finally, the different treatment of final salary schemes vs money purchase is becoming increasingly iniquitous.
On the non-political theme of pensions, never understood the rationale for the Lifetime Allowance concept. By all means limit/amend tax reliefs for contributions which are known at the time they are being made but how on earth can a twenty something be expected to plan for their future retirement needs on the basis of having to second guess what their investment returns might be worth in forty plus years time?
Also, on the subject of final salary pensions iniquity comment, can anyone identify which body of people in the the U.K. still benefit from a generous, self approved 1/40ths occupational pension arrangement?! (Answer:MPs - OK, that last one was a political comment).
One final pensions observation. Advice given from my IFA a few years ago was for early retirees to ensure they have/buy in the full required number of years NI contribution to obtain the maximum State Pension benefit. (It is, after all, with its triple lock benefit, the only way for most mortals to secure some element of an occupational type scheme).
Gus.
"By all means limit/amend tax reliefs for contributions which are known at the time they are being made but how on earth can a twenty something be expected to plan for their future retirement needs on the basis of having to second guess what their investment returns might be worth in forty plus years time?"
I think your average bod in the street would think its the ultimate first world problem moaning about having to do a few calcs to keep your tax bill down when you have a million quid in the pot to play with. That sum is more than enough for someone to retire at 60 and live comfortably - if you end up with more in pot you pay some tax back IMHO this is a fair position bearing in mind the generous portion of the pot that has been provided by the tax authorities in the first place (probably). Being frank should hmrc be subsidising any pension pot over 500k - probably not really as thats probably a reasonable enough size pot for someone to be able to manage their olders days comfortably if they are fit and well.
Hi rmillaree.
Appreciate SCVR isn’t really the appropriate place to open up the pensions can of worms, but at current annuity rates a £1,000,000 pension pot buys a 65 year old joint couple a 3% p.a indexed annuity of about £35,000 per annum so an MP with a full salary occupational pension starting at the current £82,000 base salary would require a post tax pension pot of about £2.34m (82/35x£1m). Seems a bit hypocritical for our elected lords and masters to feel that less than half their pension entitlement is where the limit should be set for everyone else’s Lifetime Allowance to be set.
Gus.
I think these are good points.
If you want to set that level (£500k) as the point where you want to add extra taxes (I'm not sure keeping some more of the money someone has earned untaxed until retirement to relieve the burden on the state should be referred to as "HMRC subsidising" but let's stay non-political ;-) ).
Then you are saying that, based on an inflation-linked annuity, no-one should be able to plan for an income in later life of greater than circa £15k (plus their state pension when it arrives at age 67 or maybe 70 by then) without incurring significant extra tax.
The trouble is that, most of the schemes that would (should) be caught by this drastic lowering of the LTA will be the govt backed ones - the final salary schemes of doctors, nurses, policemen, armed forces etc.
Many of them have protected pensions for £40k+ (equating to a money pot of £1.2m). But probably the majority will have projected pension incomes above that £15k level that you deem sufficient and that's ignoring the lump sums they are also due but which come out of the overall pot for the money purchasers.
We already have a crisis of Drs retiring early/limiting their working hours because the extra taxes they incur through annual allowance withdrawal or breaching LTA (even with the fiddled calcs currently employed and special protections for NHS scheme) as it's no longer worth their while to work and pay 70%+ taxes.
Either we massively exacerbate this problem by going to, say, the £500k limit for all scheme members and renege on the pension promises made to civil servants Drs etc. Or we move even further to the place where govt/council backed pensions are effectively unlimited and can be £45k plus but anyone who works in the private sector is working to subsidise those by being heavily taxed on any provision above a £15k income for themselves.
That seems incredibly iniquitous.
The objective of pensions was to avoid penury amongst the old: I think protected pensions of >£25K pa for anyone achieve that. With all the savings made by eliminating/reducing tax deductions we could do so much more to fix other problems in our country/world. If they need a richer retirement, let them work longer as ordinary people do.
No. The stated aim of most final salary schemes when they were established was to provide a pension equivalent to 2/3rds near final earnings after a full (40+ year) career. This was seen as a reasonable level, allowing for lower living costs in retirement. Avoiding penury was the aim of the Basic State Pension, later including a weak element of salary-linking through SERPS and the Second State Pension.
When the cost and volatility of DB funding became too onerous, the private sector moved pretty rapidly to curtailing the final salary promise and putting new employees into DC pensions. It's anomalous that the public sector has so strongly resisted this change. Partly they hid behind the mantra that they needed to keep this perk because pay was so much below private sector levels (ignoring the argument that job security was way higher). But I thought a major reason was that all except the local government scheme were unfunded, with pension 'contributions' being allocated elsewhere within the public accounts.
Very few DC schemes are likely to deliver anything like the 2/3rds target, even for the low paid where the LTA has no impact. And we're still at the very early stages of understanding how effectively Jo Public will handle the DC decumulation stage. People with the investment knowledge of the typical Stocko reader must surely represent well under 10% of the general population (and even here we read occasional hair-raising stories of lack of diversification.........).
It's staggering that the gov't has been so spineless in tackling the 20:1 conversion factor for testing DB pensions against the LTA. This was set, I recall, around 2012 when interest and annuity rates were way better than now. I don't believe it was ever intended to be set in stone but the longer it drifts the more it will be perceived as immutable with DB members and their unions crying 'foul' and retrospection if it were made more market consistent. Sensible public policy would have been to mandate 3-yearly reviews from the outset. Likewise the storm brewing over the triple-lock state pension increase could surely have been averted had policymakers exhibited a little more imagination (could they not foresee that linking to the highest of three measures, on a year-by-year not cumulative basis, would never lead to problems?). Hard-hitting article in FT today.
Tax deductions on pensions are gifts from the govt (ie they take/give money from taxpayers to a different group of people through a middleman). They make sense for the poorest by encouraging saving - so they need not suffer themselves nor become a drag on the public purse. Incentives on low wage salary schemes (whether DC or DB) therefore make sense.
Anything above this is an effective subsidy to people who generally do not need it (to avoid penury) and often complain other taxes are too high. I agree the debate is not clear on this as in so many areas - like student loans which are really taxes - and that a pension crisis is looming. The solution will have to be some kind of currency/monetary devaluation in the long run as the political noise will otherwise be too loud: promises will need to broken - starting with triple lock. However, I very much doubt this govt will grasp this (or any nettle) so we are likely to carry on as before for now.
Returning back to investing, in the very long run (5+ yrs) this is why I am realtively sanguine about companies pensions shortfalls as long as the breakdown date is far enough into the future and the company otherwise trades OK.
"I'm not sure keeping some more of the money someone has earned untaxed until retirement to relieve the burden on the state should be referred to as "HMRC subsidising" but let's stay non-political"
The fact hmrc ultimately fund 20%- 60% of what goes into someones pension is a real subsidy - they don't have to give any tax relief - 20% is what most low earners get - does it make sense that someone on 125k a year gets 10k in their pension for the net cost of 4k? - when a basic rate taxpayer has to pay 8k to get 10k in their pension. This actual added "cash subsidy" due to generous tax reliefs for the well off is very real IMHO.
When was it that the Gov't spin doctors came up with the wheeze of calling things that previously were not taxable, as "HMRC subsidising""? It implies that the starting point is that money belongs to HMRC!
I'm sorry but I think to talk of "taxing the money on the way in is a bit rum" does not fit in with what I am saying. Basically I am saying that you should earn your money and pay your tax. Then you decide what to do with it. If you decide to contribute to a pension scheme everyone should get the same percentage subsidy off the government, the amount of tax you have paid on your income being irrelevant.
If you decide to contribute to a pension scheme everyone should get the same percentage subsidy off the government, the amount of tax you have paid on your income being irrelevant.
The higher rate tax relief on pensions has always been an anomaly. It would be far better to scrap it and level the playing field than mucking about with confusing lifetime allowances - which, among other things, are helping to push doctors into early retirement while providing highly lucrative employment for pension advisors.
timarr
which, among other things, are helping to push doctors into early retirement while providing highly lucrative employment for pension advisors.
doctors do seem to like to moan , although they do have a point that their pension input amount that can limit contributions are calculated in a very unfriendly way.
They are not forced to keep adding into their pension scheme beyond the point it stops being tax efficient as far as i am aware (please correct me if i am wrong) - at that time its pretty much job already done and they are then in the same tax boat as everyone else so not sure what their beef is that they need to threaten to quit en mass? i have seen the same stories too though - seems like their moaning is just a moan to try and get better outcome for themselves if i am being honest. To a certain degree they have had successful outcome with the large increase in the threshold limits allowing them to claim top whack tax relief on amounts they would not have been able to a couple of years ago.
They are not forced to keep adding into their pension scheme beyond the point it stops being tax efficient as far as i am aware (please correct me if i am wrong)
Although it's odd you are wrong. As far as the NHS is concerned if you earn they contribute. Which is stupid but the impact is that the tax bills being generated wipe out the salaries being paid, so as far as the doctors are concerned they're being asked to work for nothing.
It's also insanely complicated - there are all sorts of complex rules around different types of pensions - to the point where your average doctor has no chance of working out whether they will be affected until after the event. So some are finding out too late that they're in this position and jacking it in. Others are cutting back on overtime, and the NHS runs on overtime.
Sadly even if you're correct that they're just trying to secure a better deal for themselves the fact is, as widely reported yesterday, doctors are retiring because of this. Over 30% of consultants and GPs are over 55 so retirement is an immediate option for most of them.
The LA is stupid. It's far too complicated - we now have pension advisors running DCF calculations to try and figure out what the tax bills will be based on projected investment returns. How can that be right?
timarr
I partially agree on this - we have after all paid more tax in the first place - it is only really giving us something back from what we have already paid over. 12 years ago HR tax payers still got a personal allowance. That's now gone for some.
I think the logic behind higher rate tax payers getting more tax relief than others is that the investment into a pension was supposed to be deferring your income until retirement. You pay your tax when the money comes out not when it goes in. The anomaly now is that a non taxpayer can actually get tax relief on pension contributions.
I've been advising on pensions for nearly 40 years and so far the biggest joke by Gov't has been calling something "Pensions Simplification".
You are assuming that inflation will stay at 3% plus but the Bank of England doesn't think so. It is not ignoring the situation, it has carefully analysed it and concluded that the current inflation spike is temporary.
Nobody really knows, but to my mind, the idea that inflation is likely to be temporary does hold water. After all, what is the root cause of higher/rising inflation? Arguably twofold, but mainly higher commodity prices. When these rise, production increases in response due to high profits at producers. So providing increased production happens, then price rises should gradually reverse. I've no idea what capacity constraints there might be with commodities?
Demand pull inflation is also possible, since Govt stimulus funded by QE has pumped so much extra cash into the system. Many households now have higher savings, which they might well splurge on holidays, eating out, etc, when restrictions end. There's already evidence of people buying more cars (dealers reporting strong trading), and furniture. (e.g. DFS & SCS (I hold) issuing upbeat trading reports recently.
What we don't have, which was arguably the reason inflation became self-fuelling in the 1970s, is highly unionised workforces, and widespread nationalisation (hence employer with infinitely deep pockets). I think that's a big factor, and means that inflation could well trend down again, after this possibly one-off surge?
Take freight rates as another example. Apparently they're up something like 10-fold. That's not likely to pertain long-term, is it? That's due to one-off disruption caused by the pandemic, and sooner or later, is likely to come back down to prices that are more normal. Mind you, building new ships takes time, so I don't know when prices would normalise.
Often we've seen in the past that when prices go sky high for whatever reason, that causes a dash for production, leading to a subsequent glut. Hence in theory anyway, inflation should sort itself out through the process of demand & supply.
Longer term, I think QE is the biggest risk. Now that Govts have discovered the magic money tree (modern monetary theory), they're not likely to stop using it, are they? To my mind, that suggests more money printing, and continued asset price inflation - good for stock markets and owners of property. Especially as interest rates are now negative, in real terms - great for people with debts, and ruinous longer term for people on fixed incomes, and holding cash.
I read a book recently about the great inflation in Weimar Germany, and learned a lot. For example, it didn't just suddenly pop up in 2023-24, which is how the history books I've read seem to portray it. It actually started in 1913, and was exacerbated by the Germans funding WWI through money-printing, unlike say the UK, which raised taxes much more.
Also, we tend to think of high inflation meaning rock bottom share prices (e.g. 1970s UK), but there were lots of other economic problems at the time.
Whereas in Weimar Germany, there was a manic stock market boom, and the general public were wildly speculating on shares. Many people became wealthy in that boom, until it eventually all collapsed in 1923-24 with the currency becoming worthless, which is the inevitable consequence of money printing on a vast scale.
Strangely, at the time German politicians thought the root cause was forex markets, which kept selling off the German currency, making imports dearer, hence Govts printed more money because larger denomination notes were needed all the time. It doesn't seem to have occurred to them that it was the money printing itself which was causing the currency to repeatedly devalue.
Anyway, my main point is that we'll get plenty of warning if hyper-inflation were to take off. It takes years to happen.
Best places to invest? Reasonably priced shares at companies with pricing power, who can pass on inflation to their customers, in my opinion. Expensive, speculative shares, probably best avoided. Also owning property seems a good idea, when you can borrow at ridiculously low fixed rates.
Personally I would be happy holding cash too, if the intended holding period is less than a year. You can only take advantage of buying opportunities if you hold cash. So in poker parlance, the implied odds of holding cash are actually rather good. Yes I might lose 0.25% of my money every month to inflation, or 3% per annum. But I might make a 30% profit by having the cash available to swoop on a share which plunges in price for no good reason. If I'm not holding cash, then that opportunity passes me buy.
Regards, Paul.
I am a huge believer in this approach - i.e. always holding some cash - inflation or no inflation. This has helped me pick up some absolute bargains. Highland gold in the mid 30p's comes to mind as an example after 2008. The dividend was around 20% per annum from what I recall. Alas that was acquired last year for around 300p. I am always on the hunt for something that has fallen beyond where it should have due to some irrational fear.
Hi Paul,
You can only take advantage of buying opportunities if you hold cash.
I'd be really interested in how you manage your portfolio so that there is always cash in it. Is it done on purpose, or does it just happen as a by-product of your buying and selling? Does portfolio size make a difference?
You can only take advantage of buying opportunities if you hold cash.
Well, you can always sell something if the opportunity presented is significant?
In the event of a true Weimar style crash then physical gold (preferably under the bed) would be the place to be, although industrial stocks held up pretty well for most of the time. The modern equivalent would be capital light internet facing stocks I'd guess, which can drop their op-ex fast and then flexibly price in the face of demand.
In the event if real inflation what you don't want to be in are capex heavy stocks, because their capex is going into materials that are rapidly inflating in price which they need to pass onto customers - who may not be willing to pay.
But inflation takes a very long time to take hold - the problems in the 1970's started back in the 1950's. It's a psychological issue as much as anything - why will people save today if the price is going to be higher tomorrow?
timarr
Interesting point on commodity prices / inflation 'auto-correcting' due to supply and demand.
To my understanding this is how it works with oil.
If you hear the phrase "oil reserves are running out", what it actually means is "oil reserves are running out at current prices"
That is to say, when oil prices are low, less exploration and processing takes place as it is economically viable for fewer producers. As such, supply would go down. Assuming demand stays the same, prices would then go up. As prices go up, it makes exploration and processing viable for more producers, so supply increases... until there is more than enough to meet demand, at which point prices start to fall again.
That is, of course, not considering the influence of OPEC and one-off events, but that would explain the basic natural cycle of prices being influenced by supply and demand.
Economics Nobel laureate Milton Friedman wrote: "inflation is always, and everywhere, a monetary phenomenon". If he was right then the QE over the recent months would lead to significant inflation.
Previous QE, in Japan for example, seems not to have triggered inflation, perhaps because other factors were driving deflation at the same time. But it's a brave or stupid person who is willing to place large bets against a Nobel prizewinner's strongly held opinion on their specialised subject.
https://www.youtube.com/watch?v=6W_9I0nk8uI
Save all your spare cash to invest in the Wise launch.
I remember the Eddie George days when the BOE was supposed to manage target level of inflation, and if it didn't it had to raise a letter. There was a desk draw stuffed with such letters when he left. So the reality is the BOE doesn't just look at inflation but also looks at other factors, and some of these I am guessing will be quasi political as well as fiscal. Raising interest rates would be a significant blow to Govt. cost of money raising, I guess.
Not quite how I remember the Eddie George years, I think there was perhaps one or two such letters. The Bank of England only became political with the expensive appointment by Osborne of Carney. I was a local trading Sterling and ECU short interest rates contracts at the time.
I have to agree with Paul's comments. My opinion is that the best place to invest your money during periods of inflation is to invest in high quality companies which are undervalued, which make a profit, have a moat which allows them to pass on price increases, have a good balance sheet and pay a dividend.
To quote the acronym.... TINA ......There Is No Alternative.
According to Stockopedia, the average Dividend Yield is 2.7%. I don't know of any savings account paying that amount of interest. The best instant access savings accounts I can find are paying around 0.5%.
David.
Here's the Stockopedia/PIWORLD StockSlam June, from Wednesday. Jack covers Concurrent Technologies (LON:CNC) very well, a Lord Lee favourite. Daniel Jones' coverage of Synthomer (LON:SYNT) gained a lot of commendation. Lots of familiar names from the PI community presenting. Stocks covered: £GAMA; £REDD; £VP.; £TND; £PXC; £EDV; £SUP; £FDEV; £NCYT. The next Slam is 8th September at 6pm. Please contact me if you'd like to Slam. And of course register if you'd like to attend (should be on the PIWORLD events page shortly). Video & Podcast.
I see that Angle (LON:AGL) has inevitably come back to the market for funds to develop further their unique Parsortix system further into prostate cancer treatment processes. The system has already a number of research centre positive reports across the US and Europe in this area, which is probably developing into the fastest growing cancer killer in men.
They already have an application awaiting approval for breast cancer with the FDA in the US where the response is expected in H2 calendar 2021.
This really could be building into a very valuable company, if they continue to attract funding to get approval for the multiple applications they have already proven in the various internationally-rated research centres with whom they have been working over many years. Reports continue to stream out on a regular basis where the system offers much more than current competitive processes, to the benefit of the patients, the effectiveness and cost of treatments. The latest two were related to treatment of oesophageal and lung cancers respectively.
Back in April, Finncap forecast an SP of 220p, given FDA approval.
I'm a long term holder in case you hadn't guessed. Pity I couldn't get more shares at the latest cash raise at the discount.
Re Angle (LON:AGL), it’s not often we see a company trading up 2.5% the morning after a discounted placement. Good support.
Hello John Eustace. I guess that one of the concerns of investors in loss making R&D
companies is always whether they will be able to raise sufficient fundsto get through to profitability and then the big time. We all knew that Angle (LON:AGL) would need more, but how much and when. They are taking it in bite size chunks, not high discounts, and telling us what is next - prostate, and assuming than many investors will be males in the right age category, it will be a cause which resonates with us.
I had tried to get them on to Mello for some time and they finally made it on a packed session with 8 other companies recently. I took out of this session a few points, which I commend to others, even if you pay for an annual pass to listen to it (£79 a year from memory, a pittance for all the quality of investment advice it offers).
The first was the FD saying they were in it for the long haul. He quoted another company that had been taken out cheaply at $600m and was now just a few years later worth $6 billion. The second was that they would need to come back to the market to pay for the various stages. I would guess that once the system - and it is a system - has been approved in this case by the FDA, then I guess that with the data from the various top level research centres with results in use for the other forms of cancers, it should be progressively easier.
PS I was also impressed at the same Mello session by the presentation orm another company which had similarities to £AGL. This was Polarean Imaging (LON:POLX) which offered the medical specialists such a superior agent to help them make better decisions in individual targeted cancer - at least to my untrained eye. I was moved to make a modest initial investment. they haven't made my fortune yet, but I commend the presentation to you.
Angle (LON:AGL) Particularly liked AN’s comment ………..
“ANGLE looks forward to announcing further progress on multiple fronts in H2 CY21, including the prospect of FDA clearance for the Parsortix platform."
Re Angle (LON:AGL), as a (relatively recent) holder I also would have liked to participate in the raise but it seems to have been a done deal. I looked up the disapplication of pre-emption rights for Angle shareholders, which has been a topic on SCVR of late (and a bit of bug-bear of Pauls I believe), but it seems all Angle's recent placings have been effected on a non pre-emptive basis.
As a matter of interest, how does one check these rights when making investment decisions? It seems to me there should be some sort of easily checked disclosure without necessarily having to trawl through RNS's and/or a company's statutory filings.
My morning smallcap tweet:
Remote Monitored Systems (LON:RMS) Mirriad Advertising (LON:MIRI) Amigo Holdings (LON:AMGO) Marshall Motor Holdings (LON:MMH) Inspiration Healthcare (LON:IHC) Capital & Regional (LON:CAL) Xpediator (LON:XPD) UP Global Sourcing Holdings (LON:UPGS) Angle (LON:AGL)
Remote Monitored Systems (RMS) 5-ply version of Pro-Larva anti-viral mask, developed with Volz Filters UK, approved by the UK's Medicines and Healthcare products Regulatory Agency. Has extra anti-bac layer. [SP=1.04 Cap=21m]
Mirriad Advertising (MIRI) 2 year agreement with China's Tencent to further scale in-content advertising. [SP=45.33 Cap=126m]
Amigo (AMGO) totters on with a further extension of the securitisation facility performance trigger waiver period, to Sept. [SP=8.74 Cap=42m]
Marshall Motor Holdings (MMH) FY U/L pretax likely to be significantly ahead of current market expectation after recent unprecedented used vehicle value appreciation and favourable demand-to-supply conditions for both new and used vehicles. No surprise after Vertu's upgrade this week. [SP=187 Cap=146m]
Inspiration Healthcare (IHC) AGM stmt: start to FY "has been more than pleasing". That's a new one. Confident. [SP=130 Cap=89m]
Capital & Regional (CAL) seeing improving momentum on both leasing and our rent collection statistics. Occupancy 'robust' at 89%. [SP=74.6 Cap=83m]
Xpediator (XPD) hikes FY(Dec) adj pretax guidance to over £8.5m as strong trend continues. [SP=72.24 Cap=102m]
UP Global Sourcing (UPGS) [last night] £15m placing and PrimaryBid offer at 2.3% discount to buy Salter. [SP=214 Cap=176m]
Angle (AGL) [last night] £20m placing at 7% discount. [SP=125 Cap=270m]
It would be interesting to know the size of the current annual Up Global Sourcing Holdings (LON:UPGS) royalty payments to Salter since, as you point out, that is another direct benefit of the acquisition.
(LON:UPGS)I hold - This looks to be a positive acquisition. Research note on Research Tree states royalty payments to Salter of £1.3m FY '20
Further to the points already made, contained within the RNS it says that UPGS did not previously have the license for Salters scales, which adds additional value
-- "Since 2011, Ultimate Products has licensed the Salter brand for the sale of kitchen electrical and cookware products (not including Salter scales), with the current licence due to expire in 2024."
There is also an in line with expectations trading update contained within the RNS
My understanding is they have included the royalty elimination in the forward EBITDA calc (£4.3m). Licence was also up for renewal in 2024. Co says limited risk around that renewal, but risk now removed. They are buying a completely known quantity, which should be a huge positive.
If indeed this is correct it is great news. I think it's a good purchase at a decent price.
Re Up Global Sourcing Holdings (LON:UPGS) - I queried this point with Equity Development, about royalties to Salter, who have just replied saying;
Yep the numbers are correct and yes, the numbers take into account the elimination of the royalty payments at 5% (if you’re looking at Salter, the £1.3m was in the non-measuring devices sales